SMM Base Metals Weekly Price Review and Forecast (Mar. 10-14, 2014)

SHANGHAI, Mar. 11 (SMM) – Gold and crude oil prices were pushed up by the political turbulence in Ukraine, but base metals prices fell due to heavy sell-offs by risk-averse investors. In China, metals prices witnessed significant volatility this week, boosted by Premier Li Keqiang’s encouraging government work report. SMMI.Cu fell by 0.17%, with a 1% swing last week, SMMI.Ai slid by 0.88%, and SMMI.Pb dropped by 0.72%. LME nickel prices, however, bucked the trend to reach a fresh 9-month high, while SMMI.Ni rose by 2%. SMMI.Zn followed LME zinc prices up by 0.16%. SMMI fell by 0.19% last week.  

Copper
The violent attack in the southwest Chinese city of Kunming, and the Ukraine crisis, caused SHFE copper prices to tumble last Monday, with selling pressure sending prices down to a nearly nine-month low of RMB 48,600/mt, or a loss of over 2%. SHFE copper prices regained some ground Wednesday after Chinese Premier Li Keqiang presented the government work report. Although shorts were actively liquidating positions, a lack of buying support limited any upward momentum in copper prices. SHFE copper prices may find support at RMB 48,800-49,000/mt, with resistance at RMB 49,500-49,800/mt.

Last week, the SHFE/LME copper price ratio was still low at 7.0, and the recent RMB depreciation caused more imported copper to flow into domestic spot markets. Those imports, combined with an inflow of hedged goods, left ample supply in Chinese copper market.

Aluminum
SHFE 1405 aluminum contract prices fell to their lowest level in nearly five years at RMB 13,175/mt last week. Although prices rebounded later in the week due to rising LME aluminum prices and technical support, price increases were limited as investors took profits at highs. In China’s physical markets, rising spot aluminum prices gave cargo holders incentive to sell, but downstream producers purchased only as needed after large quantities of aluminum ingots arrived in markets and since spot aluminum prices rose only slightly. In the second half of the week, SHFE aluminum prices fell back, depressing buying interest at traders.

Uncertainties from economic data from major economies, as well as the Ukraine crisis, will keep investors cautious this coming week. LME aluminum prices should fluctuate between USD 1,750-1,820/mt. Markets will seek guidance from the National People's Conference (NPC) and the Chinese People's Political Consultative Conference (CPPCC) sessions, which will end later this week. Prices for the most active contracts should meet strong resistance given the bearish sentiment, moving between RMB 13,200-13,400/mt. In China’s spot markets, increasing deliveries and the slow recovery in downstream consumption will leave spot discounts over SHFE 1403 aluminum contract prices at RMB 250-200/mt.

Lead
The most active SHFE lead contract fell to a new low of RMB 13,710/mt after initially rising as high as RMB 13,970/mt. Positions increased by more than 1,000 lots. SHFE lead prices should hold steady between RMB 13,750-13,950/mt given mixed technical indicators this week.

In China’s physical lead markets last week, trading activity remained light, and traded prices ranged mostly between RMB 13,650-13,800/mt. Lead smelters began holding back goods, causing supply to fall in both the Shanghai and Guangdong markets. Downstream producers replenished raw material inventories only when SHFE lead prices were low since they were reporting disappointing orders and believed lead prices would fall further. Spot lead prices are forecast this week to trade mostly between RMB 13,700-13,800/mt. Purchases from downstream lead-acid battery producers are unlikely to recover due to sluggish end-user consumption and tight liquidity. Nevertheless, these producers are willing to go bargain-hunting after lead prices stabilize at low levels. More maintenance at lead smelters during March should support lead prices.

Zinc
Last week, spot zinc market prices improved from two weeks ago, with spot discounts against SHFE 1405 zinc contract prices expanding from RMB 200/mt to RMB 300/mt after SHFE zinc prices surged, prompting traders to purchase actively. However, as SHFE zinc prices fell back, spot discounts narrowed to RMB 200/mt again, allowing some arbitrage traders to move goods. Spot discounts for Shuangyan branded #0 zinc were RMB 200/mt, but were over RMB 200/mt for Jiulong and Qinxin branded #0 zinc. Spot supply remained ample, but downstream enterprises purchased on an as-needed basis with prices around RMB 15,000/mt, leaving transactions mainly among traders.

Last week, demand in Guangdong market improved, with #0 zinc prices level with Shanghai prices, allowing some smelters in southwest China to increase supply to Guangdong. Spot demand in Tianjin remained sluggish, with downstream buyers mostly purchasing on an as-needed basis, but spot supply fell later in the week as some smelters reduced deliveries. #0 zinc prices rose from RMB 110/mt below Shanghai prices early in the week to RMB 80/mt below Shanghai prices. Prices of Huludao branded zinc produced on older production lines rose by RMB 50/mt, to RMB 15,510/mt.

SHFE 1405 zinc contract prices will test support at RMB 15,050/mt this week, with spot discounts narrowing to RMB 150/mt due to improving spot demand.

Tin
In Shanghai’s physical market, tin prices dropped from RMB 141,500-143,500/mt early last week to RMB 141,000-143,000/mt last Friday. LME tin was range-bound, but most other base metals rallied, boosting market sentiment. This allowed spot tin prices to hold stable even against weak demand. Later in the week, supply in spot market grew as second- and third-tier brand goods from Jiangxi arrived continuously. Meanwhile, demand remained anemic, sending tin prices down to RMB 141,000-141,500/mt. Prices for Yunxi brand tin remained firm at RMB 143,000-143,500/mt, though.

Nickel
In China’s domestic nickel markets, the average price last week for #1 refined nickel was RMB 94,620/mt, up RMB 1,060/mt. Jinchuan Group adjusted ex-works prices twice, closing the week at RMB 96,000/mt, up by a total of RMB 1,500/mt. Spot trading was light, with traded prices below RMB 94,500-95,500/mt.

This week, SMM expects LME nickel prices to continue rising, but any gains will be less than the previous week, with prices between USD 15,500-16,000/mt. Prices in China’s domestic nickel market are expected between RMB 95,500-96,500/mt. Downstream producers will continue to purchase on an as-needed basis, with the majority of transactions made between traders.